Apple’s Hold-out Strategy Nears End & Appears to Backfire in UK
Wednesday, November 9, 2022

The UK has again demonstrated the ongoing trend against hold-out, approving an order forcing Apple to commit to take a license on FRAND terms, to be determined by the court, or face an injunction. This ruling is the latest in a line of decisions favorable to SEP holders across Europe and the United States that seem to be retilting SEP licensing towards more balance between innovators (patent owners) and implementers (alleged infringers). While there is more progress to be made, and the recognition of hold-out as a real problem continues to gain traction, this new UK decision reinforces basic principles of patent law: injunctions for SEPs are a real possibility.

Thirteen months after Justice Meade gave Apple the choice of committing to undertaking a license—with FRAND terms to be decided later by the court—or face an injunction, the UK Court of Appeals upheld his decision forcing Apple’s commitment. Although the court also denied Optis’ cross-appeal and held that an immediate injunction should not issue, it reiterated that an unwilling licensee, who refuses to undertake a commitment to a license without contingency, will be enjoined.  Tellingly, the decision focused heavily on issues of implementer hold-out in the tactics and arguments advanced by Apple.     

Background

Optis and Apple have been entangled in a years-long global dispute over Optis’ SEP portfolio relating to the Long-Term Evolution (LTE) standard for wireless telecommunications utilized by Apple’s 3G and 4G devices. Following four technical trials in the UK—covering essentiality, validity, and infringement—the parties met at a fifth proceeding to determine relief, including the terms of a FRAND license.  Prior to the fifth trial, however, the UK court forced Apple to commit to taking a license on judicially determined FRAND terms or face an injunction. This commitment was a blind undertaking, such that Apple must agree to take the license without knowing the terms. Apple refused, and, Optis sought an immediate injunction.  Justice Meade sided with Optis and ordered Apple to commit or be enjoined.  A month later, Apple made its commitment, but appealed the decision requiring its undertaking before it could see the terms of the license.  

Decision

Apple’s appeal was predicated on the notion that Optis was not entitled to an injunction unless and until the court determined FRAND terms and Apple had an opportunity to decide whether to take a license on those terms.  Optis argued that it was entitled to an immediate injunction based on Apple’s refusal.  The court’s decision rested on four factors, including (1) the proper interpretation of clause 6.1 of the ETSI IPR Policy to which the SEPs were committed; (2) competition law arguments raised by Apple; (3) the lower court’s discretion in exercising an injunction; and (4) Whether Apple’s contingent undertaking of October 15, 2020 had any effect.

The court found that clause 6.1 ETSI IPR Policy created an irrevocable undertaking on Optis’ part that required it to grant Apple a FRAND license if, and when, it chose to accept one.  The court also held that Apple must commit to accepting the terms of the court-ordered license or face an injunction because Apple was already infringing the SEPs.  The court was unpersuaded by Apple’s argument that it was being asked to issue a blank check for terms that could be uncommercial or unviable to it.  The court noted that the terms to be determined by the lower court would be objectively FRAND and that if an implementer was unable to pay such a rate it should not be using the patented technology.

Takeaway

This order provides further clarification to the UK approach to adjudicating SEP-disputes and further establishes a roadmap for other jurisdictions to follow to equitably adjudicate SEP litigation.  Although Justice Arnold criticized both parties for what he perceived as dual-attempts to “game the system,” he noted that, “Apple’s behavior in declining to commit to take a Court-Determined Licence once they had been found to infringe…and their pursuit of their appeal, could well be argued to constitute a form of hold-out." This seems to foreclose certain gamesmanship by implementers and sends a clear message that Apple’s approach to hold-out will be at the risk of an injunction. 

Justice Arnold went on to suggest that standard setting organizations (SSOs), such as ETSI, should integrate legally enforceable arbitration agreements into their policies to mitigate bad behavior in SEP licensing. The industry should closely watch to see if SSOs do, in fact, adopt such an approach because it may help curb hold-out even more and impact SEP-holder strategy as well.  Indeed, in the long run, everyone will benefit from a market with efficient licensing schemes, one in which hold-out is not a viable strategy.

Apple may still try to appeal the order on the FRAND license terms, once it issues, but Apple is running out of options and will ultimately face an injunction if it does not accept the terms.

 

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